Financial Q&A: A financial move that would boost college aid

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March 30, 2009

Q: Our son, who is now 21, dropped out of school after completing almost two years. He now plans to return. We will still be financially responsible for his education. We have $30,000 in one of our CDs that matures in a few months. We also have a mortgage on our vacation home that is down to about $40,000. Would we be better off paying off this mortgage to reduce our available cash when completing the FAFSA?

A: A.J. Sohn, a financial planner in Concord, Mass., says that financial aid departments at most schools look at the equity in vacation properties as an asset that could be used to pay for school. They would consider the CD and other parental cash to be fair game as well.

Therefore, says Mr. Sohn, paying down the vacation property may not have the desired effect. But paying down a mortgage on your primary residence - assuming you have such a loan - could prove beneficial.

By using the CD money to pay down your primary-residence mortgage, you would move an asset that would otherwise be counted into a position that is specifically not included on the FAFSA form (Free Application For Student Aid).